My latest AIP article is up, albeit with a different title: “CFPA Gone Elitist?” I like the title I gave my piece so there.
But really, if there was ever a case that revealed liberal elitism, snobbery, and their unshakable belief that they know what is best for everybody else because, at bottom, we’re just a bunch of goober chewing, gun toting, Jesus loving, inbred ignoramuses who can’t take care of ourselves, the proposed Consumer Financial Protection Agency is it:
The point is, Obama’s CFPA will play the role of National Papa by forcing financial services institutions - banks, mortgage companies, brokerage firms - to limit the sale of complicated financial products only to those customers who can grasp their complexity and hence, manage the risk.
This elitist idea is the result of the belief by some liberals that too many consumers were snookered by unscrupulous loan companies and bought mortgages that they should never have purchased. These sub-prime loans had balloon provisions that would kick in after a few years, dramatically increasing their interest rate and with it, their monthly payments.
No doubt some loan sharks did indeed either fail to follow the law and fully disclose all the risks associated with such a loan or simply lied. Laws are already on the books to deal with these criminals who prey on those who are less sophisticated in financial matters than others. Full disclosure laws have been a part of the financial industry for many years and there are clear guidelines regarding the disclosure of all risks and obligations of the consumer.
But that’s just not good enough, say the Daddy Staters. We’re too stupid to know what’s in our best interest and even if we read all the disclosure information, we’re too unsophisticated to understand it.
Enter the CFPA who will sit us down in the government family room not to help us make our own choices in financial matters, but to lay down the law and back it up with a shaving strop.
One of the recommendations to financial institutions who will segregate their products into easy to understand, “vanilla” offerings and more complex instruments, is to give consumers a test to weigh their knowledge of financial matters in order to determine whether they are capable of getting a home loan or purchase some other financial instrument.
The problem is that if a financial company sells a more complex offering to a consumer and it goes south, the customer can go running to the CFPA with a complaint or sue. In other words, if you like medical malpractice, you will love the new CFPA.
I would be unable to pass even a beginner’s test on financial matters. And devising a test to measure if a consumer has the knowledge to “understand” the risks involved in buying a product will be an interesting exercise. If they make it too easy, they leave themselves open to trouble. If they make it too hard, they lose a lot of business.
There are other problems with the new agency as well. Read my whole piece.